**Table of Contents**

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**Amendment No. 1**

**To**

 

**FORM 10-K**

 

| **(Mark One)** |
|----------------|
| **x**          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   |   |
| ** **     | ** ** | **For the  fiscal year ended****December 31, 2008****.** |
|           |   |   |
| **OR**         |
|           |   |   |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   |   |
| ** **     | ** ** | **For the  transition period from                            to** |

 

**Commission file number:****1-10346**

 

**EMRISE CORPORATION**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                        | ** ** | **77-0226211**                       |
|---------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation  or organization)     | ** ** | (I.R.S. Employer Identification No.) |
|                                                                | ** ** |                                 |
| **9485 Haven Avenue, Suite 100, Rancho Cucamonga, California** | ** ** | **91730**                            |
| (Address of principal executive offices)                            | ** ** | (Zip Code)                           |

 

Registrant’s telephone number,including area code: **(909) 987-9220**

 

Securities registered pursuant to Section 12(b) ofthe Act:

 

| **Title of Each Class** | ** ** | **Name of Each Exchange on Which Registered** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|
| **Common Stock,  $0.0033 par value**   | ** ** | **NYSE Arca**                                                               |

 

Securities registered pursuant to Section 12(g) ofthe Act:

**None**

(Title of class)

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes o   No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o   No x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).   Yes o   No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 
| Large  Accelerated Filer o                                          | Accelerated  Filer o               |
|---------------------------------------------------------------------|------------------------------------|
|                                                                |                               |
| Non-Accelerated  Filer (do not check if Smaller Reporting Company)o |  Smaller  Reporting Company x |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o   No x

 

Theaggregate market value of the voting common equity held by nonaffiliates of theregistrant, computed by reference to the $2.44 closing sale price of such stockon June 30, 2008, the last business day of the registrant’s most recentlycompleted second fiscal quarter, was approximately $25,000,000.  The registrant has no non-voting commonequity.

 

Thenumber of shares outstanding of the Registrant’s common stock, $0.0033 parvalue, as of April 24, 2009 was 10,204,079.

 

DOCUMENTS INCORPORATED BY REFERENCE: **None.**

 

 

 

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**EMRISE CORPORATION**

**AMENDMENT NO. 1 TO ANNUAL REPORT ON**

**FORM 10-K**

**FOR THE YEAR ENDED DECEMBER 31, 2008**

 

**TABLE OF CONTENTS**

 
| ** **            | ** **                                                                                      | **Page**   |
|-----------------------|-------------------------------------------------------------------------------------------------|------------|
| ** **            | ** **                                                                                      | ** ** |
| **Explanatory  Note** | ** **                                                                                      |
| ** **            | ** **                                                                                      | ** ** |
| **PART III**     | ** **                                                                                      |
| ** **            | ** **                                                                                      | ** ** |
| Item 10.              | Directors, Executive Officers and Corporate Governance                                          | 2          |
| Item 11.              | Executive Compensation                                                                          | 7          |
| Item 12.              | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters | 15         |
| Item 13.              | Certain Relationships and Related  Transactions, and Director Independence                      | 18         |
| Item 14.              | Principal Accounting Fees and Services                                                          | 19         |
|                  |                                                                                            |       |
| **PART IV**      | ** **                                                                                      |
| ** **            | ** **                                                                                      | ** ** |
| Item 15.              | Exhibits and Financial Statement Schedules                                                      | 20         |

 

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**EXPLANATORYNOTE**

 

On April 15, 2009, EMRISECorporation (the “Company”) filed its Annual Report on Form 10-K for theyear ended December 31, 2008 with the Securities and Exchange Commission.In that report, the Company indicated that it would file the informationrequired by Part III of Form 10-K by incorporating such informationby reference to the Company’s definitive proxy statement for the 2009 AnnualMeeting of Stockholders to be filed no later than April 30, 2009.  The Company is not filing its definitiveproxy statement for the 2009 Annual Meeting of Stockholders prior to April 30,2009.  Consequently, the Company isamending its Annual Report on Form 10-K for the year ended December 31,2008 to provide the information required by Part III of Form 10-K.  Part III of the Company’s Form 10-Kis amended and restated in its entirety as set forth below.  Except as set forth in this amendment, theCompany is not amending or updating any information contained within its AnnualReport on Form 10-K for the year ended December 31, 2008.

 

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**PART III**

** **

**Item 10.**                Directors, Executive Officers and CorporateGovernance.

 

**Biographical Information**

 

The names, ages and positions held by our directorsand executive officers as of April 24, 2009 and their business experienceare as follows:

 
| **Name**                           | ** ** | **Age** | ** ** | **Titles**                                                                                          |
|------------------------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------------|
|                               |       |    |       |                                                                                                |
| Carmine T. Oliva                   |       | 66      |       | Chairman of the Board, President, Chief Executive  Officer, and Director                            |
|                               |       |    |       |                                                                                                |
| Graham Jefferies                   |       | 51      |       | Executive Vice President, Chief Operating Officer and  Managing Director of EMRISE Electronics Ltd. |
|                               |       |    |       |                                                                                                |
| D. John Donovan                    |       | 42      |       | Vice President Finance and Administration, Secretary and  Treasurer                                 |
|                               |       |    |       |                                                                                                |
| Laurence P. Finnegan, Jr. (1) |       | 70      |       | Director                                                                                            |
|                               |       |    |       |                                                                                                |
| Otis W. Baskin (1)                 |       | 63      |       | Director                                                                                            |
|                               |       |    |       |                                                                                                |
| Richard E. Mahmarian (1)           |       | 71      |       | Director                                                                                            |

 

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(1)                      Member of the compensationcommittee, corporate governance and nominating committee and audit committee.

 

**Carmine T. Oliva** has been Chairman of theBoard, President and Chief Executive Officer and a Class III director ofEMRISE Corporation since March 26, 1997 and of our subsidiary, EMRISEElectronics Corporation, since he founded EMRISE Electronics Corporation in1983.  Mr. Oliva served as ActingChief Financial Officer and Secretary of EMRISE Corporation from August 18,2006 to May 15, 2007 and served as Acting Chief Financial Officer from April toJuly 2005.  Mr. Oliva has beenChairman of the Board of EMRISE Electronics Ltd. since 1985, and Chairman andChief Executive Officer of CXR Larus since March 1997. In 2002, Mr. Olivaobtained a French government working permit and assumed responsibility asPresident of our CXR-AJ subsidiary. From January 1999 to January 2000,Mr. Oliva served as a director of Digital Transmission Systems Inc. From1980 to 1983, Mr. Oliva was Senior Vice President and General Manager, ITTAsia Pacific Inc.  Prior to holding thatposition, Mr. Oliva held a number of executive positions with ITTCorporation and its subsidiaries over an eleven-year period.  Mr. Oliva attained the rank of Captainin the United States Army and is a veteran of the Vietnam War.  Mr. Oliva earned a B.A. degree fromSeton Hall University and an M.B.A. degree from The Ohio State University.

 

**Graham Jefferies** was appointed asExecutive Vice President on October 21, 1999. Mr. Jefferies was alsoappointed as our Chief Operating Officer on January 3, 2005, after havingserved as Chief Operating Officer of our Telecommunications Group since October 21,1999. Mr. Jefferies served as Executive Vice President of EMRISECorporation from April 1999 through October 1999. Mr. Jefferieshas served CXR-AJ as a director since March 1997 and as General Managersince July 2002, has served as Managing Director of Belix PowerConversions Ltd.,****Belix WoundComponents Ltd. and Belix Company Ltd. since our acquisition of those companiesin April 2000, as Managing Director of XCEL Power Systems, Ltd. since September 1996and as Managing Director of EMRISE Electronics Ltd. since March 1992.  Prior to joining us in 1992, he was Sales andMarketing Director of Jasmin Electronics PLC, a major United Kingdom softwareand systems provider, from 1987 to 1992. Mr. Jefferies held a variety of 

 

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project management positions at GEC Marconi from 1978 to1987. Mr. Jefferies earned a B.S. degree in Engineering from LeicesterUniversity, and has experience in mergers and acquisitions. Mr. Jefferiesis a citizen and resident of the United Kingdom.

 

**D. John Donovan** was appointed as our VicePresident Finance and Administration, Secretary and Treasurer effective May 16,2007. Prior to joining us, Mr. Donovan served as a management consultantat DLC, Inc. where he was employed from December 2004 to April 2007.  During that time, he handled variousfinancial and accounting functions for the firm’s clients, including hisprincipal client, AeroVironment, Inc. (NasdaqGM: AVAV). From March 2002to October 2004, Mr. Donovan served as president and chief financialofficer of Chem Lab Products, Inc., a private manufacturer of chemicals.Prior to that, he served as chief financial officer of Gainey Ceramics, ascontroller of Rembrandt Photo Services, as director of financial reporting atTransamerica Corporation, as manager of financial reporting at CapitolMultimedia, Inc., and as a certified public accountant at Price Waterhouseand Ernst & Young LLP. Mr. Donovan earned a B.S. degree inAccounting and a Master of Accountancy degree in Information Systems fromBrigham Young University and is a certified public accountant.

 

**Laurence P. Finnegan, Jr.**has served as a Class IIdirector since March 26, 1997.  Inaddition, he was a director of EMRISE Electronics Corporation from 1985 to March 1997,and was EMRISE Electronic Corporations part-time Chief Financial Officer from1994 to 1997. Mr. Finnegan has held positions with ITT (1970-1974) ascontroller of several divisions, Narco Scientific (1974-1983) as Vice PresidentFinance, Chief Financial Officer, Executive Vice President and Chief OperatingOfficer, and Fischer & Porter (1986-1994) as Senior Vice President,Chief Financial Officer and Treasurer. Since August 1995, he has been aprincipal of GwynnAllen Partners, Bethlehem, Pennsylvania, an executivemanagement consulting firm. From 1996-2008 Mr. Finnegan was a director and thePresident of GA Pipe, Inc., a manufacturing company based in Langhorne,Pennsylvania. From September 1997 to January 2001, Mr. Finneganserved as Vice President Finance and Chief Financial Officer of QuestOne DecisionSciences, an efficiency consulting firm based in Pennsylvania. Since August 2001,Mr. Finnegan has served as a director and the Vice President and ChiefFinancial Officer of VerdaSee Solutions, Inc., a consulting and softwarecompany based in Pennsylvania. Mr. Finnegan earned a B.S. degree inAccounting from St. Joseph’s University.

 

**Otis W. Baskin** has served as a Class Idirector since February 6, 2004.  Hehas been a Professor of Management at The George L. Graziadio School ofBusiness and Management at Pepperdine University in Malibu, California since June 1995and also served as dean from 1995 to 2001. He has been a member of the full-time faculty of the University ofHouston - Clear Lake (1975-1987), where he served as Coordinator of theManagement Faculty and Director of the Center for Advanced Management Programs.He has also been Professor of Management at Arizona State University, WestCampus (1987-1991) and The University of Memphis (1991-1995), in addition toserving as dean at both universities. Dr. Baskin worked with AACSBInternational (Association for the Advancement of Collegiate Schools ofBusiness) as Special Advisor to the President and as Chief Executive Officerfrom July 2002 to June 2004. He is an Associate with the FamilyBusiness Consulting Group, where he advises family owned and closely heldbusinesses. He has served as an advisor to Exxon/Mobile Research andEngineering Corporation, NASA and the United States Air Force.  He earned a Ph.D. in Management, PublicRelations and Communication Theory from The University of Texas at Austin, anM.A. degree in Speech Communication from the University of Houston, and a B.A.degree in Religion from Oklahoma Christian University.

 

**Richard E. Mahmarian** was appointed as a Class IIIdirector on March 1, 2006. He is currently serving as a principal andChairman, President and Chief Executive Officer of Control Solutions, Inc.,a company that specializes in providing business systems including hardware,software, consumable products and services to major United States corporations,since December 2003. Mr. Mahmarian also is 

 

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serving as the Managing Member and Chairman and ChiefExecutive Officer of REM Associates, LLC, a private investment and consultingcompany, since 1997. From 1998 until 2001, Mr. Mahmarian was the owner ofAlpha Microsystems, LLC, a company that manufactured and sold mini-computersystems, personal computers and servers, provided network services and support,and information technology hardware and software services throughout NorthAmerica through 50 field offices. In addition, from 1997 until 2006, Mr. Mahmarianowned R&R Palos Verdes Enterprises, Inc., a home construction companyin Los Angeles, California.  He served inthe United States Navy and was honorably discharged. While in the Navy, hereceived extensive training in advanced electronic technologies. Mr. Mahmarianearned a B.A. degree in Accounting from Upsala College and an M.B.A. inMarketing and Economics from Seton Hall University. Mr. Mahmarian is amember of the Board of Regents of Seton Hall University and the Board ofAdvisors of Crestmont College of the Salvation Army.

 

**Term ofOffice and Family Relationships**

 

Our officers are appointed by, andserve at the discretion of, our board of directors. There are no family relationships among our executive officers, anddirectors.

 

**Board of Directors**

 

*General*

 

Our business, property and affairs are managed underthe direction of our board. Directors are kept informed of our business throughdiscussions with our executive officers, by reviewing materials provided tothem and by participating in meetings of our board and its committees.

 

Our bylaws provide that our board of directors shallconsist of at least four directors. Our board is divided into three classes ofdirectors: Class I, Class II and Class III. The term of officeof each class of directors is three years, with one class expiring each year atour annual meeting of stockholders. We currently have four directors on ourboard, with no vacancies.** **Our current board consists of one Class Idirector whose term expires at our 2009 annual meeting, one Class IIdirector whose term expires at our 2010 annual meeting, and two Class IIIdirectors whose terms expire at our 2011 annual meeting.

 

*BoardCommittees*

 

Our board of directors currently has an auditcommittee, a compensation committee and a corporate governance and nominating committee.

 

*Audit Committee*

 

The audit committee selects our independentregistered public accountants, reviews the results and scope of the audit andother services provided by our independent registered public accountants,reviews our financial statements for each interim period and for our year endand our internal financial and accounting controls, and recommends, establishesand monitors our disclosure controls and procedures. Messrs. Finnegan andBaskin served on our audit committee throughout 2008, with Mr. Finneganserving as chairman. Mr. Mahmarian was appointed to the audit committee inMarch 2008.  Our board of directorshas determined that Messrs. Finnegan and Mahmarian are audit committeefinancial experts. The audit committee operates pursuant to a charter approvedby our board of directors and audit committee, according to the rules andregulations of the SEC.

 

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*Compensation Committee*

 

The compensation committee is responsible forestablishing and administering our policies involving the compensation of allof our executive officers and establishing and recommending to our board ofdirectors the terms and conditions of all employee and consultant compensationand benefit plans. Our entire board of directors also may perform thesefunctions with respect to our employee stock option plans. Messrs. Finneganand Mr. Baskin have served on the compensation committee throughout 2008,with Mr. Baskin serving as chairman. Mr. Mahmarian was appointed to the compensation committee in March 2008.  The compensation committee operates pursuantto a charter approved by our board of directors and compensation committee.

 

*Corporate Governance and Nominating Committee*

 

The corporate governance and nominating committeereviews and provides oversight with regards to our corporate governance relatedpolicies and procedures and also recommends nominees to our board of directors andcommittees of our board of directors, develops and recommends to our board ofdirectors corporate governance principles, and oversees the evaluation of theboard of directors and management. Messrs. Baskin and Finnegan have servedon the nominating committee throughout 2008. Mr. Mahmarian serves as chairman of the corporate governance andnominating committee.  Mr. Mahmarianwas appointed to the corporate governance and nominating committee in March 2008.  The nominating committee utilizes a varietyof methods for identifying and evaluating nominees for director, includingcandidates that may be referred by stockholders.

 

The corporate governance and nominating committeewill consider candidates for director recommended by any stockholder that isthe beneficial owner of shares representing more than 1.0% of thethen-outstanding shares of our common stock and that has beneficially ownedthose shares for at least one year. The corporate governance and nominatingcommittee will evaluate those recommendations by applying its regular nomineecriteria and considering the additional information described in the corporategovernance and nominating committee’s below-referenced charter. Stockholdersthat desire to recommend candidates for the board for evaluation may do so bycontacting EMRISE Corporation in writing, identifying the potential candidateand providing background and other information in the manner described in thenominating committee’s charter. Candidates may also come to the attention ofthe nominating committee through current board members, professional searchfirms and other persons. In evaluating potential candidates, the corporategovernance and nominating committee will take into account a number of factors,including, among others, the following:

 

·                 independence from management;

 

·                 depth of understanding of technology, manufacturing,sales and marketing, finance and/or other elements directly relevant to thetechnology and business of our company;

 

·                 education and professional background;

 

·                 judgment, skill, integrity and reputation;

 

·                 existing commitments to other businesses as adirector, executive or owner;

 

·                 personal conflicts of interest, if any; and

 

·                 the size and composition of the board of directors.

 

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In addition, prior to nominating a sitting directorfor re-election at an annual meeting of stockholders, the corporate governanceand nominating committee considers the director’s past attendance at, andparticipation in, meetings of our board of directors and its committees and thedirector’s formal and informal contributions to their respective activities.

 

The corporate governance and nominating committeeoperates pursuant to a charter approved by our board of directors and corporategovernance and nominating committee.

 

*Committee Charters*

 

The charters of our audit, compensation andnominating committees, and our codes of business conduct and ethics, areincluded on our website at http://www.emrise.com. The foregoing information isalso available in print to any stockholder who requests it.  All such requests should be in writing andshould be sent to “c/o Secretary” at 9485 Haven Avenue, Suite 100, RanchoCucamonga, California 91730 or jdonovan@emrise.com.

 

*Security HolderCommunications with the Board of Directors*

 

The board of directors has established a process toreceive communications from security holders. Security holders and otherinterested parties may contact any member (or all members) of the board ofdirectors, or the independent directors as a group, any committee of the boardof directors or any chair of any such committee, by mail or electronically. Tocommunicate with the board of directors, any individual directors or any groupor committee of directors, correspondence should be addressed to the board ofdirectors or any such individual directors or group or committee of directorsby either name or title. All such correspondence should be sent “c/o Secretary”at 9485 Haven Avenue, Suite 100, Rancho Cucamonga, California 91730. Tocommunicate with any of our directors electronically, security holders shouldsend an email to our Secretary at: jdonovan@emrise.com.

 

All communications received as set forth in thepreceding paragraph will be opened by the Secretary for the sole purpose ofdetermining whether the contents represent a message to our directors. Anycontents that are not in the nature of advertising, promotions of a product or service,patently offensive material or matters deemed inappropriate for the board ofdirectors will be forwarded promptly to the addressee. In the case ofcommunications to the board of directors or any group or committee ofdirectors, our Secretary will make sufficient copies (or forward suchinformation in the case of e-mail) of the contents to send to each director whois a member of the group or committee to which the envelope or e-mail isaddressed.

 

**Code of Ethics**

 

Our board of directors has adopted an Amended andRestated Code of Business Conduct and Ethics that applies to all of ourdirectors, officers and employees and an additional Code of Business Ethicsthat applies to our Chief Executive Officer and senior financial officers.  These codes are available on our Internetwebsite, located at http://www.emrise.com.

 

We intend to satisfy the disclosure requirementunder Item 5.05 of Form 8-K relating to amendments to or waivers fromprovision of these codes that relate to one or more of the items set forth inItem 406(b) of Regulation S-K, by describing on our Internet websitewithin four business days following the date of a waiver or a substantiveamendment, the date of the waiver or amendment, the nature of the amendment orwaiver, and the name of the person to whom the waiver was granted.

 

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Information on our Internet website is not, andshall not be deemed to be, a part of this report or incorporated into any otherfilings we make with the SEC.

 

**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) of the Exchange Act requiresour executive officers and directors, and persons who beneficially own morethan 10% of a registered class of our common stock, to file initial reports ofownership and reports of changes in ownership with the SEC.  These officers, directors and stockholdersare required by the SEC regulations to furnish us with copies of all reportsthat they file.

 

Based solely upon a review of copies of the reportsfurnished to us during the year ended December 31, 2008 and thereafter, orany written representations received by us from directors, officers andbeneficial owners of more than 10% of our common stock that no other reportswere required, we believe that, during 2008, (i) all Section 16(a) filingrequirements applicable to our directors and officers were met and (ii) exceptfor any Form 5 filings that may have been required, all Section 16(a) filingrequirements applicable to the beneficial owners of more than 10% of our commonstock were met.

 

**Item 11.**                Executive Compensation.

 

**Summary Compensation Table**

 

Thefollowing table provides information concerning the compensation for the yearsended December 31, 2007 and December 31, 2008 for our principalexecutive officer, our principal financial officer, and our chief operatingofficer, who was the only other person who served as an executive officerduring 2008 (collectively, the “named executive officers”).

 
| **Name and  Principal Position**                         | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Option  Awards  ($) (1)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|----------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Carmine T. Oliva                                                   |       | 2007     |       | 350,000         |       | —         |       | —                           |       | 33,163                                | (2)        |           | 383,163    |   |
| Chief Executive Officer  and former Acting Chief Financial Officer |       | 2008     |       | 415,000         |       | —         |       | 7,507                            |       | 26,993                                | (3)        |           | 449,500    |   |
|                                                               |       |     |       |            |       |           |       |                             |       |                                  |       |           |       |   |
| Graham Jefferies  (4)                                              |       | 2007     |       | 306,417         |       | —         |       | —                           |       | 28,862                                | (5)        |           | 335,279    |   |
| Executive Vice  President, Chief Operating Officer                 |       | 2008     |       | 332,226         |       | —         |       | 6,391                            |       | 29,306                                | (6)        |           | 367,923    |   |
|                                                               |       |     |       |            |       |           |       |                             |       |                                  |       |           |       |   |
| D. John Donovan  (7)                                               |       | 2007     |       | 148,667         |       | —         |       | 12,710                           |       | 733                                   | (8)        |           | 162,110    |   |
| Vice President Finance  and Administration                         |       | 2008     |       | 237,866         |       | 10,000         |       | 34,286                           |       | 21,222                                | (9)        |           | 303,374    |   |

 

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(1)         The dollar amount reflected is the compensation costwe recognized for financial statement reporting purposes for the 2007 and 2008fiscal years for stock options granted in those years, as well as prior fiscalyears, in accordance with SFAS No. 123(R). For purposes of the amount shown in the table above, no forfeitures wereassumed to take place.  The fair value ofeach grant is estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions for thefiscal years indicated:

 
| ** **                | ** ** | **2008** | ** ** | **2007** |
|---------------------------|------------|----------|------------|----------|
|                      |       |     |       |     |
| Dividend yield            |       | 0.00     | %          |     | 0.00 | % |
| Expected  volatility      |       | 62.46    | %          |     | 82.80 | % |
| Risk-free  interest rates |       | 2.51     | %          |     | 4.76 | % |

 

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| ** **                             | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Expected option  life (in years)       |       | 6.0      |       | 7.0      |       |
| Weighted-average  fair value per share |       | $        | 4.59       |     | $          | 3.41 |   |
|                                        |            |          |            |          |            |  |  |

 

Forpurposes of the amounts shown in the table above, no forfeitures were assumedto take place.  Information regarding thematerial terms of the grants for which we recognized compensation costs in 2007and 2008 is included in the “Outstanding Equity Awards at December 31,2008” table below.

(2)         Amount represented includes $2,411 in insurance premiums we paid withrespect to a $1,000,000 term life insurance policy for the benefit of Mr. Oliva’sspouse.  This amount also includesperquisites or personal benefits provided, none of which individually exceedthe greater of $25,000 or 10% of the total amount of these benefits provided toMr. Oliva.

(3)         Amount represented includes $4,041 in insurance premiums we paid withrespect to a $1,000,000 term life insurance policy for the benefit of Mr. Oliva’sspouse.  This amount also includesperquisites or personal benefits provided, none of which individually exceedthe greater of $25,000 or 10% of the total amount of these benefits provided toMr. Oliva.

(4)         Mr. Jefferies is based in the United Kingdom and receives hisremuneration in British pounds sterling. The compensation amounts listed for Mr. Jefferiesare shown in United States dollars, converted from British pounds sterlingusing the average of the daily conversion rates in effect in 2008.

(5)         Amount represented includes $18,353 in company contributions to Mr. Jefferies’retirement account.  This amount alsoincludes perquisites or personal benefits provided, none of which individuallyexceed the greater of $25,000 or 10% of the total amount of these benefitsprovided to Mr. Jefferies.

(6)         Amount represented includes $19,780 in company contributions to Mr. Jefferies’retirement account.  This amount alsoincludes perquisites or personal benefits provided, none of which individuallyexceed the greater of $25,000 or 10% of the total amount of these benefitsprovided to Mr. Jefferies.

(7)         Mr. Donovan has been employed by us since May 16, 2007, when hewas appointed as our Vice President of Finance and Administration.

(8)         Amount represents insurance premiums we paid with respect to a term lifeinsurance policy for the benefit of Mr. Donovan’s spouse.  The value of perquisites and other personalbenefits Mr. Donovan received was less than $10,000 in aggregate.

(9)         Amount represented includes $1,100 in insurance premiums we paid withrespect to a term life insurance policy for the benefit of Mr. Donovan’sspouse. ** **Thisamount also includes perquisites or personal benefits provided, none of whichindividually exceed the greater of $25,000 or 10% of the total amount of thesebenefits provided to Mr. Donovan.

 

**Employment Agreements**

 

*Carmine T.Oliva*

 

EffectiveNovember 1, 2007, we entered an executive employment agreement with Mr. Olivathat replaced his previous employment agreement dated February 24,2006.  Under the November 1, 2007executive employment agreement with Mr. Oliva, Mr. Oliva has agreedto serve as our Chairman of the Board, President and Chief Executive Officer onan at-will basis. The agreement provides for a base salary of $350,000, paidvacation of at least four weeks per year, a monthly automobile allowance of atleast $750, and non-exclusive use of our corporate residence. Mr. Oliva iseligible to receive increases and annual cash incentive bonuses at thediscretion of our compensation committee and to participate in benefit andincentive programs we may offer. We have also agreed to maintain in effect adirectors’ and officers’ liability insurance policy with a minimum limit ofliability of $10 million and that we would enter into an indemnificationagreement with Mr. Oliva upon terms mutually acceptable to us and Mr. Oliva.  Effective January 1, 2008, ourCompensation Committee increased Mr. Oliva’s annual base salary to$415,000 per year.

 

The agreement contains non-competition provisionsthat prohibit Mr. Oliva from engaging or participating in a competitivebusiness or soliciting our customers or employees during his employment with usand for two years afterward. The agreement also contains provisions thatrestrict disclosure by

 

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Mr. Olivaof our confidential information and assign ownership to us of inventionsrelated to our business that are created by him during his employment and for twoyears afterward.

 

We may terminate the agreement at any time, with orwithout due cause. “Due cause” includes any intentional misapplication of ourfunds or other material assets, or any other act of dishonesty injurious to us,or conviction of a felony or a crime involving moral turpitude. “Due cause”also includes abuse of controlled substances or alcohol and breach,nonperformance or nonobservance of any of the terms of the agreement, providedthat Mr. Oliva fails to satisfactorily remedy the performance problemfollowing 30 days’ written notice.

 

Mr. Oliva may terminate the agreement at anytime, with or without good reason. However, termination for good reason mustoccur within 90 days of the occurrence of an event constituting good reason,and Mr. Oliva must furnish us with written notice of the event within 30days after the initial existence of the event and provide us with at least a30-day cure period. “Good reason” includes: a material diminution in hisauthority, duties, responsibilities, titles or offices; a purported reductionin Mr. Oliva’s base salary amounting to a material diminution in hissalary to an amount less than the greater of $350,000 or 10% below the basesalary in effect at the time of the reduction; our failure to timely cure ordiligently initiate a cure of any material breach within 30 days after Mr. Olivagives us written notice of the breach.

 

If we terminate Mr. Oliva’s employment for duecause or due to Mr. Oliva’s breach of his employment agreement by refusingto continue his employment, or if Mr. Oliva terminates his employmentwithout good reason, then all compensation and benefits for Mr. Oliva willcease, other than amounts under retirement and benefit plans and programs thatwere earned and vested by the date of termination, pro rata annual salarythrough the date of termination, any stock options that were vested as of thedate of termination, and accrued vacation as required by California law.

 

If Mr. Oliva becomes incapacitated, we mayterminate his employment under the agreement upon 30 days’ prior writtennotice.  Upon Mr. Oliva’s death, theagreement terminates immediately. If Mr. Oliva’s employment terminates dueto his incapacity or death, Mr. Oliva or his estate or legalrepresentative will be entitled to receive benefits under our retirement andbenefits plans and programs that were earned and vested at the date oftermination, a prorated incentive bonus for the fiscal year in which incapacityor death occurred (to the extent he would otherwise be eligible), and a lumpsum cash payment in an amount equal to one year of his then current annualsalary, grossed up to cover applicable taxes that are deducted from suchamount.

 

If Mr. Oliva’s employment terminates for goodreason or other than as a result of due cause, incapacity, death or retirement,Mr. Oliva will be entitled to his salary through the end of the month inwhich termination occurs plus credit for accrued vacation, and a proratedincentive bonus, if eligible, for the fiscal year during which terminationoccurred. In addition, under those circumstances, if Mr. Oliva enters intoa separation and release agreement with us, then he will be entitled to receive(i) a severance payment equal to three times his then current annualsalary (grossed up to cover applicable taxes that are deducted from suchamount), (ii) all medical insurance benefits to which he was entitledimmediately prior to the date of termination for a period of eighteen months orthe date that Mr. Oliva’s continued participation in our medical insuranceplan was not possible under the plan, whichever was earlier, (iii) alump-sum cash payment equal to eighteen times the estimated monthly COBRApremiums at the time of termination (taking into account all known oranticipated premium increases) to be used by Mr. Oliva to maintain hismedical insurance coverage for an additional eighteen months, and (iv) alump-sum cash payment equal to thirty-six times the estimated monthly lifeinsurance premiums at the time of termination (taking into account all known oranticipated premium increases) to be used by Mr. Oliva to maintain hisexisting group life insurance coverage and the $1,000,000 life insurance policyon his life for 

 

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three years.  If ourmedical insurance plan did not allow Mr. Oliva’s continued participation,then we will be required to pay to Mr. Oliva, in monthly installments, themonthly premium or premiums for COBRA coverage, covering the eighteen monthperiod described in clause (ii) in the preceding sentence.

 

Immediately preceding the occurrence of a change incontrol, and regardless of whether Mr. Oliva’s employment terminatesand/or he receives severance payments as a result of the change in control, Mr. Olivawill be entitled to receive a payment equal to three times his then currentannual salary (grossed up to cover applicable taxes that are deducted from suchamount).

 

A “change in control” includes the followingcircumstances:

 

(a)                                the acquisition by any person or group of beneficialownership of securities entitled to vote generally in the election of ourdirectors (“voting securities”) that represent 40% or more of the combinedvoting power of our then outstanding voting securities or 50% or more of thecombined fair market value of our then outstanding stock, other than:

 

(i)                         an acquisition by a trustee or other fiduciaryholding securities under any employee benefit plan (or related trust) sponsoredor maintained by us or any person controlled by us or by any employee benefitplan (or related trust) sponsored or maintained by us or any person controlledby us, or

 

(ii)                      an acquisition of voting securities by us or acorporation owned, directly or indirectly, by our stockholders in substantiallythe same proportions as their ownership of our stock;

 

(b)                               a majority of members of our board is replacedduring any 12-month period by directors whose appointment or election is notendorsed by a majority of members of our board before the date of theappointment or election, excluding any individual whose initial assumption ofoffice occurs as a result of an actual or threatened election contest withrespect to the election or removal of directors or other actual or threatenedsolicitation of proxies or consents by or on behalf of a person other than ourboard;

 

(c)                                the acquisition by any person or group, or combinedacquisitions during the 12-month period ending on the date of the most recentacquisition by such person or group, of ownership of assets from us that have atotal gross fair market value equal to or more than 40% of the total gross fairmarket value of all of our assets immediately before such acquisition; and

 

(d)                               stockholder approval of a complete liquidation ordissolution of our company.

 

Notwithstanding circumstance (a) above,however, if we make an acquisition of our securities that (x) causes ourvoting securities beneficially owned by a person or group to represent 40% ormore of the combined voting power of our then outstanding voting securities or (y) causesour stock beneficially owned by a person or group to represent 50% or more ofthe combined fair market value of our then outstanding stock, the acquisitionwill not be considered an acquisition by any person or group for purposes ofcircumstance (a) unless the person or group subsequently becomes thebeneficial owner of additional securities of EMRISE Corporation.

 

For purposes of circumstance (a) above, thecalculation of voting power will be made as if the date of the acquisition werea record date for a vote of our stockholders, and for purposes of circumstance 

 

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(c) above, the calculation of voting power will bemade as if the date of the consummation of the transaction were a record datefor a vote of our stockholders.

 

Notwithstanding the above, there will be no changein control event when there is a transfer to an entity that is controlled byour stockholders immediately after the transfer.  A transfer of assets by us is not treated asa change in control if the assets are transferred to: a stockholder of ours(immediately before the asset transfer) in exchange for or with respect to thestockholders’ stock; an entity, 50% or more of the total value or voting powerof which is owned, directly or indirectly, by us; a person or group that owns,directly or indirectly, 50% or more of the total value or voting power of allof our outstanding stock; or an entity, at least 50% of the total value orvoting power of which is owned, directly or indirectly, by a person or groupdescribed in the immediately preceding clause.

 

*Graham Jefferies*

* *

Effective November 1, 2007, we executed a newemployment agreement with Mr. Jefferies that replaced his previousemployment agreement dated February 24, 2006.  Under the November 1, 2007 executiveemployment agreement with Mr. Jefferies, Mr. Jefferies has agreed toserve as our Executive Vice President and Chief Operating Officer on an at-willbasis.  The agreement provides for a basesalary of 152,800 British pounds sterling per year (approximately $316,600 as ofNovember 1, 2007), which amount is to be paid by our subsidiary, EMRISEElectronics Ltd., paid vacation of 25 working days per year and public holidaysin the United Kingdom, and a monthly automobile allowance of at least 460British pounds sterling.  Mr. Jefferiesis eligible to receive increases and annual cash incentive bonuses at thediscretion of our compensation committee and to participate in benefit andincentive programs we may offer. We have also agreed to maintain in effect adirectors’ and officers’ liability insurance policy with a minimum limit ofliability of $10 million and that we would enter into an indemnificationagreement with Mr. Jefferies upon terms mutually acceptable to us and Mr. Jefferies.  Effective January 1, 2008, ourCompensation Committee increased Mr. Jefferies annual base salary to178,000 British pounds sterling (approximately $320,000 as of January 1,2008).

** **

The agreement contains non-competition provisionsthat prohibit Mr. Jefferies from engaging or participating in acompetitive business or soliciting our customer or employees during hisemployment with us and for two years afterward. The agreement also containsprovisions that restrict disclosure by Mr. Jefferies of our confidentialinformation and assign ownership to us of inventions related to our businessthat are created by Mr. Jefferies in connection with his employment andfor two years afterward.

 

Mr. Jefferies may terminate the agreement atany time, with or without good reason. However, termination for good reasonmust occur within 30 days of the occurrence of an event constituting goodreason. The term “good reason” has the same meaning as in Mr. Oliva’semployment agreement described above, except that Mr. Jefferies’ basesalary is 178,000 British pounds sterling per year.

 

We may terminate the agreement at any time,immediately upon written notice, with or without due cause. The term “due cause”has the same meaning as in Mr. Oliva’s employment agreement describedabove, except that Mr. Jefferies may satisfactorily remedy the performanceproblem following 90 days’ written notice. If we terminate Mr. Jefferies’employment for due cause or due to Mr. Jefferies’ breach of his employmentagreement by refusing to continue his employment, or if Mr. Jefferiesterminates his employment without good reason, then all compensation andbenefits for Mr. Jefferies will cease, other than amounts under retirementand benefit plans and programs that were earned and vested by the date oftermination, pro rata annual salary through the date of termination, and anystock options that were vested as of the date of termination, and accruedvacation as required by applicable law.

 

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If Mr. Jefferies becomes mentally or physicallyincapable of performing the services required under the agreement for a periodof 180 consecutive days, the agreement terminates; provided, however, that Mr. Jefferieswill remain an employee of EMRISE Electronics Ltd. and be entitled toremuneration in an amount equal to the amount paid under EMRISE ElectronicsLtd.’s permanent health insurance scheme, subject to the paragraph immediatelybelow. Upon Mr. Jefferies’ death, the agreement terminates immediately.

 

If Mr. Jefferies’ employment terminates due tohis incapacity or death, Mr. Jefferies or his estate or legalrepresentative will be entitled to receive benefits under our retirement andbenefits plans and programs that were earned and vested at the date oftermination, a prorated incentive bonus for the fiscal year in which incapacityor death occurred (to the extent he would otherwise be eligible), and a lumpsum cash payment in an amount equal to one year of his then current annualsalary, grossed up to cover applicable taxes that are deducted from suchamount.

 

If Mr. Jefferies’ employment terminates forgood reason or other than as a result of due cause, incapacity, death orretirement, Mr. Jefferies will be entitled to his salary through the endof the month in which termination occurs plus credit for accrued vacation, anda prorated incentive bonus, if eligible, for the fiscal year during whichtermination occurred. In addition, under those circumstances, if Mr. Jefferiesenters into a separation and release agreement with us, then he will beentitled to receive a severance payment equal to two times his then currentannual salary (grossed up to cover applicable taxes that are deducted from suchamount), to receive all medical andlife insurance benefits to which he was entitled immediately prior to the dateof termination (or at the election of Mr. Jefferies in the event of a change in control,immediately prior to the date of the change in control) for a period of twoyears or the date or dates that Mr. Jefferies’ continued participation in our medical and/orlife insurance plans was not possible under the plans, whichever wasearlier.  If our medical and/or lifeinsurance plans did not allow Mr. Jefferies’ continued participation, thenwe will be required to pay to Mr. Jefferies, in monthly installments, themonthly premium or premiums that had been payable by us covering the two-yearperiod.

** **

Immediately preceding the occurrence of a change incontrol, and regardless of whether Mr. Jefferies’ employment terminatesand/or he receives severance payments as a result of the change in control, Mr. Jefferieswill be entitled to receive a payment equal to two times his then currentannual salary (grossed up to cover applicable taxes that are deducted from suchamount). The term “change in control” has the same meaning as in Mr. Oliva’semployment agreement described above.

 

*D. John Donovan*

* *

We entered into an employment agreement with Mr. Donovaneffective as of November 1, 2007 which replaced an employment agreementdated May 16, 2007 with Mr. Donovan. Under the November 1, 2007 executive employment agreement with Mr. Donovan,Mr. Donovan has agreed to serve as our Vice President Finance andAdministration, Secretary and Treasurer on an at-will basis. The agreementprovides for an initial base salary of $223,000 during the first six months ofemployment followed by a 10% increase to his base salary to $245,300, anobjective-based additional cash compensation for up to $20,000 during the firstseven months of employment to be awarded based solely on the CEO’sdetermination (and payable as to one-half of this amount, if at all, on November 30,2007 and May 1, 2008).  Mr. Donovanwas awarded $10,000 in objective based additional cash compensation in2008.  The agreement also provides forreimbursement for up to $5,000 per year for Certified Public Accountantcontinuing professional education programs, paid vacation of at least threeweeks per year, and a monthly automobile allowance of at least $600.  Mr. Donovan is eligible to receiveincreases and annual cash incentive bonuses at the discretion of ourcompensation committee and to participate in benefit and incentive programs wemay offer.  We have also agreed tomaintain in effect a directors’ and officers’ 

 

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liability insurance policy with a minimum limit ofliability of $10 million and that we would enter into an indemnificationagreement with Mr. Donovan upon terms mutually acceptable to us and Mr. Donovan.

 

The agreement contains non-competition provisionsthat prohibit Mr. Donovan from engaging or participating in a competitivebusiness or soliciting our customer or employees during his employment with usand for two years afterward. The agreement also contains provisions thatrestrict disclosure by Mr. Donovan of our confidential information andassign ownership to us of inventions related to our business that are createdby him during his employment and for two years afterward.

 

Mr. Donovan may terminate the agreement at anytime, with or without good reason. However, termination for good reason mustoccur within 90 days of the occurrence of an event constituting good reason,and Mr. Donovan must furnish us with written notice of the event within 30days after the initial existence of the event and provide us with at least a30-day cure period. The term “good reason” has the same meaning as in Mr. Oliva’semployment agreement described above, except that Mr. Donovan’s initialbase salary is $223,000 during the first six months of employment, and $245,300thereafter per year.

 

If we terminate Mr. Donovan’s employment fordue cause or due to Mr. Donovan’s breach of his employment agreement byrefusing to continue his employment, or if Mr. Donovan terminates hisemployment without good reason, then all compensation and benefits for Mr. Donovanwill cease, other than amounts under retirement and benefit plans and programsthat were earned and vested by the date of termination, pro rata annual salarythrough the date of termination, any stock options that were vested as of thedate of termination, and accrued vacation as required by California law.

 

If Mr. Donovan becomes incapacitated, we mayterminate his employment under the agreement upon 30 days’ prior writtennotice.  Upon Mr. Donovan’s death,the agreement terminates immediately. If Mr. Donovan’s employmentterminates due to his incapacity or death, Mr. Donovan or his estate orlegal representative will be entitled to receive benefits under our retirementand benefits plans and programs that were earned and vested at the date oftermination, a prorated incentive bonus for the fiscal year in which incapacityor death occurred (to the extent he would otherwise be eligible), and a lumpsum cash payment in an amount equal to one year of his then current annualsalary, grossed up to cover applicable taxes that are deducted from suchamount.

 

If Mr. Donovan’s employment terminates for goodreason or other than as a result of due cause, incapacity, death or retirement,Mr. Donovan will be entitled to his salary through the end of the month inwhich termination occurs plus credit for accrued vacation, and a proratedincentive bonus, if eligible, for the fiscal year during which terminationoccurred. In addition, under those circumstances, if Mr. Donovan entersinto a separation and release agreement with us, then he will be entitled toreceive (i) a severance payment equal to his then current annual salary(grossed up to cover applicable taxes that are deducted from such amount), (ii) allmedical insurance benefits to which he was entitled immediately prior to thedate of termination for a period of eighteen months or the date that Mr. Donovan’scontinued participation in our medical insurance plan was not possible underthe plan, whichever was earlier, and (iii) a lump-sum cash payment equalto $1,650 to be used by Mr. Donovan to maintain his existing life  insurance coverage for a period of eighteenmonths.  If our medical insurance plandid not allow Mr. Donovan’s continued participation, then we will berequired to pay to Mr. Donovan, in monthly installments, the monthlypremium or premiums for COBRA coverage, covering the eighteen month perioddescribed in clause (ii) in the preceding sentence.

** **

Immediately preceding the occurrence of a change incontrol, and regardless of whether Mr. Donovan’s employment terminatesand/or he receives severance payments as a result of the change in 

 

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control, Mr. Donovan will be entitled to receive apayment equal to his then current annual salary (grossed up to cover applicabletaxes that are deducted from such amount).

 

The terms “due cause” and “change in control” havethe same meaning as in Mr. Oliva’s employment agreement described above.

 

**Outstanding Equity Awards at December 31,2008**

** **

Thefollowing table sets forth information about outstanding equity awards held byour named executive officers as of December 31, 2008.  The information below has been adjusted toreflect a 1 for 3.75 reverse split of our common stock that we completed in November 2008.

 
| ** **       | ** ** | **Option Awards**                                                             | ** ** |
|------------------|------------|------------------------------------------------------------------------------------|------------|
| **Name**         | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** |
|             |       |                                                                               |       |   |   |   |   |   |   |
| Carmine T. Oliva |       | 26,667                                                                             |       |   | — |   |   | 1.88 |   |   | 01/31/2011 |   |
|             |       | 14,134                                                                             |       |   | — |   |   | 1.31 |   |   | 01/22/2013 |   |
|             |       | 6,934                                                                              |       |   | — |   |   | 3.75 |   |   | 02/24/2014 |   |
|             |       | 13,334                                                                             |       |   | — |   |   | 7.50 |   |   | 12/29/2015 |   |
|             |       | —                                                                             |       |   | 20,000 | (1) |   | 2.18 |   |   | 08/22/2018 |   |
|             |       | —                                                                             |       |   | 20,000 | (2) |   | 3.06 |   |   | 08/22/2018 |   |
|             |       |                                                                               |       |   |   |   |   |   |   |   |   |   |
| Graham Jefferies |       | 16,000                                                                             |       |   | — |   |   | 0.75 |   |   | 11/15/2009 |   |
|             |       | 14,400                                                                             |       |   | — |   |   | 1.31 |   |   | 01/22/2013 |   |
|             |       | 10,667                                                                             |       |   | — |   |   | 3.75 |   |   | 02/24/2014 |   |
|             |       | 13,334                                                                             |       |   | — |   |   | 7.50 |   |   | 12/29/2015 |   |
|             |       | —                                                                             |       |   | 20,000 | (1) |   | 2.18 |   |   | 08/22/2015 |   |
|             |       | —                                                                             |       |   | 20,000 | (2) |   | 3.06 |   |   | 08/22/2015 |   |
|             |       |                                                                               |       |   |   |   |   |   |   |   |   |   |
| D. John Donovan  |       | 6,667                                                                              |       |   |   |   |   | 4.24 |   |   | 05/15/2017 |   |
|             |       | 6,667                                                                              |       |   |   |   |   | 4.61 |   |   | 07/01/2017 |   |
|             |       | —                                                                             |       |   | 20,000 | (1) |   | 2.18 |   |   | 08/22/2018 |   |
|             |       | —                                                                             |       |   | 20,000 | (2) |   | 3.06 |   |   | 08/22/2018 |   |

 

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(1)                The option becomes exercisable in three equalinstallments on August 22, 2009, 2010 and 2011.

(2)                The option shall be exercisable in three equalinstallments on the latter of (a) August 22, 2009, August 22,2010 and August 22, 2011, respectively, or (b) the date the Companyfiles its financial statements with the SEC for the second consecutive fiscalquarter in which the Company reports net income (after taxes) on its CondensedConsolidated Statements of Operations after August 22, 2008.

 

**Director Compensation - 2008**

** **

Each non**-**employeedirector is entitled to receive $1,000 per month as compensation for hisservices. In addition, each board member chairing a standing committee isentitled to receive $500 per 

 

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month as compensation for his services. We reimburse alldirectors for out-of-pocket expenses incurred in connection with attendance atboard and committee meetings. We may periodically award options or warrants toour directors under our existing option and incentive plans.

 

Thefollowing table provides information concerning the compensation of ournon-employee directors for the year ended December 31, 2008.

 
| **Name**                  | ** ** | **Fees Earned  or Paid in Cash  ($)** | ** ** | **Option Awards  ($)(1)** | ** ** | **Total  ($)** | ** ** |
|---------------------------|------------|-----------------------------------------------------------|------------|--------------------------------|------------|----------------|------------|
|                      |       |                                                      |       |                           |       |           |       |
| Laurence P.  Finnegan, Jr |       | 18,000                                                    |       | 3,754                          | (2)        |           | 21,754     |   |
| Otis W. Baskin            |       | 18,000                                                    |       | 3,754                          | (3)        |           | 21,754     |   |
| Richard E.  Mahmarian     |       | 18,000                                                    |       | 3,754                          | (4)        |           | 21,754     |   |

 

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(1)         The dollar amount reflected is the compensation cost we recognized forfinancial statement reporting purposes for the 2008 fiscal years for stockoptions granted in that year  inaccordance with SFAS No. 123(R).  Wedid not recognize compensation cost for financial reporting purposes for the2008 fiscal year for stock options granted in prior years.  For purposes of the amount shown in the tableabove, no forfeitures were assumed to take place.   The fair value of each grant is estimated onthe date of grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions for the fiscal years indicated:

 
| ** **                             | ** ** | **2008** |
|----------------------------------------|------------|----------|
|                                   |       |     |   |
| Dividend yield                         |       | 0.00     | % |
| Expected  volatility                   |       | 62.46    | % |
| Risk-free  interest rates              |       | 2.51     | % |
| Expected option  life (in years)       |       | 7.0      |   |
| Weighted-average  fair value per share |       | $        | 4.83 |   |
|                                        |            |          |  |  |

 

(2)         At December 31, 2008, Mr. Finnegan held options to purchase anaggregate of 77,601 shares of common stock (adjusted to reflect a 1 for 3.75reverse split of our common stock that we completed in November 2008).

(3)         At December 31, 2008, Mr. Baskin held options to purchase an aggregateof 42,668 shares of common stock (adjusted to reflect a 1 for 3.75 reversesplit of our common stock that we completed in November 2008).

(4)         At December 31, 2008, Mr. Mahmarian held options to purchase anaggregate of 33,334 shares of common stock (adjusted reflect a 1 for 3.75reverse split of our common stock that we completed in November 2008).

 

**Item 12.**                Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters.

 

*BeneficialOwnership Table*

* *

Except asotherwise indicated in the related footnotes, the following table sets forthinformation with respect to the beneficial ownership of our common stock as of April 24,2009, by:

 

·                  each person known by us to beneficially own morethan 5% of the outstanding shares of our common stock;

 

·                  each of our directors;

 

·                  each of the named executive officers in the summarycompensation table contained above; and

 

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·                  all of our directors and our executive officers as agroup.

 

Beneficial ownership is determined in accordancewith the rules of the Securities and Exchange Commission, and includesvoting or dispositive power with respect to the securities.  To our knowledge, except as indicated byfootnote, and subject to community property laws where applicable, the personsnamed in the table below have sole voting and dispositive power with respect toall shares of common stock shown as beneficially owned by them.  Except as indicated in the discussion ofcontractual beneficial ownership limitations below and except as indicated inthe footnotes to the table below, shares of common stock underlying derivativesecurities, if any, that currently are exercisable or convertible or arescheduled to become exercisable or convertible for or into shares of commonstock within 60 days after the date of the table are deemed to be outstandingin calculating the percentage ownership of each listed person or group but arenot deemed to be outstanding as to any other person or group.  Percentage of beneficial ownership is basedon 10,204,079 shares of common stock outstanding as of the date of the table.  The information below has been adjusted toreflect a 1 for 3.75 reverse split of our common stock that we completed in November 2008.

** **

The address of each of the following stockholders,unless otherwise indicated in the footnotes to the table, is c/o EMRISECorporation, 9485 Haven Avenue, Suite 100, Rancho Cucamonga, California91730.  Messrs. Oliva, Finnegan,Baskin, and Mahmarian are directors of EMRISE Corporation.  Messrs. Oliva, Donovan and Jefferies arenamed executive officers and current executive officers of EMRISE Corporation.

 
| **Name of Beneficial Owner**                                                            | ** ** | **Amount and Nature  of Beneficial Ownership** | ** ** | **Percent of  Class** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------|------------|
|                                                                                                   |       |                                                               |       |                       |       |
| Carmine T. Oliva                                                                                       |       | 395,551                                                            | (1)        |                       | 3.85       | % |   |
| Laurence P.  Finnegan, Jr.                                                                        |       | 72,047                                                             | (2)        |                       |       | * |   |
| Otis W. Baskin                                                                                         |       | 25,335                                                             | (3)        |                       |       | * |   |
| Richard E.  Mahmarian                                                                                  |       | 17,501                                                             | (4)        |                       |       | * |   |
| Graham Jefferies                                                                                       |       | 55,275                                                             | (5)        |                       |       | * |   |
| D. John Donovan                                                                                        |       | 15,117                                                             | (6)        |                       |       | * |   |
| Austin W. Marxe  and David M. Greenhouse                                                               |       | 995,351                                                            | (7)        |                       | 9.75       | % |   |
| Private Equity  Management Group LLC                                                                   |       | 775,758                                                            | (8)        |                       | 7.07       | % |   |
| Gruber and  McBaine Capital Management, LLC, Jon D. Gruber, J. Patterson McBaine and Eric  B. Swergold |       | 629,538                                                            | (9)        |                       | 6.12       | % |   |
| All executive  officers and directors as a group (6 persons)                                           |       | 580,826                                                            | (10)       |                       | 5.57       | % |   |

 

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| *   | Less than 1.00%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Includes 21,837 shares held individually by Mr. Oliva’s spouse, and  61,069 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (2) | Includes 57,061 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3) | Includes 22,668 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (4) | Includes 13,334 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (5) | Includes  54,401 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (6) | Includes  13,334 shares underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (7) | Based  on share beneficial ownership information contained in a Schedule 13G/A filed  February 13, 2009 by Austin W. Marxe and David M. Greenhouse,  the controlling principals of AWM Investment Company, Inc. (“AWM”). ** **AWM  serves as the general partner of MGP Advisers Limited Partnership, the  general partner of and investment advisor to Special Situations Fund III QP,  L.P. and Special Situations Fund III, L.P.   Messrs. Marxe and Greenhouse share voting and investment power  over 982,995 shares of common stock owned by Special Situations Fund III QP,  L.P. and 12,356 shares of common stock owned by Special Situations Fund III,  L.P.  The address for  Messrs. Marxe and Greenhouse is 527 Madison Avenue, Suite 2600, New  York, New York 10022. |

 

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| (8)  | Based  on share beneficial ownership information contained in a Schedule 13G filed  February 11, 2008, by Private Equity Management Group LLC (“PEM”).  PEM has indicated that it is deemed to be  the beneficial owner of an aggregate of 775,758 shares underlying warrants,  over which Danny Pang, Robert Anderson, Wilbur Quon, Todd Gillespie, Peter  Paul Mendel, Lian-Hung Chan, Yuan-Feng Sandra Chang and Anthony Bufinsky, as  members of PEM, acting by majority in membership interests may be deemed to  have the power to vote or direct the vote and the power to dispose or to  direct the disposition of the shares.   The address for PEM is One Park Plaza, Suite 550, Irvine,  California 92614.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (9)  | Based  in part on share beneficial ownership information contained in a Schedule 13G  filed February 13, 2009, in which Gruber and McBaine Capital Management,  LLC (“GMCM”), Jon D. Gruber, J. Patterson McBaine and Eric B. Swergold indicated  that they constitute a group, each of whom shares voting and dispositive  power over 458,754 outstanding shares. Also, Mr. Gruber and  Mr. McBaine indicated they have sole voting and dispositive power over  an additional 74,983 and 5,800 shares of our common stock, respectively.  In addition, warrants to purchase shares of  our common stock were beneficially owned as follows: Gruber and McBaine  International — 13,334; Mr. Gruber — 11,000; Mr. McBaine — 5,667;  and Lagunitas Partners LP, an investment limited partnership of which GMCM is  the general partner — 60,000.  The  warrants contain provisions limiting the exercise of the warrants to the  extent necessary to insure that following the exercise, the total number of shares  of common stock then beneficially owned by the warrant holder and its  affiliates and others whose beneficial ownership would be aggregated with the  holder’s for purposes of Section 13(d) of the Exchange Act does not  exceed 9.999% of the total number of then issued and outstanding shares of  our common stock (including for such purpose the shares of common stock  issuable upon such exercise or call).   The 9.999% beneficial ownership limitation may not be waived.  However, the beneficial ownership  limitation does not preclude a holder from exercising a warrant and selling  the shares underlying the warrant in stages over time where each stage does  not cause the holder and its affiliates to beneficially own shares in excess  of the limitation amount. GMCM is a registered investment advisor whose clients  have the right to receive or the power to direct the receipt of dividends  from, or the proceeds from the sale of shares of our common stock.  Messrs. Gruber and McBaine indicated they were the managers, controlling  persons and portfolio managers of GMCM. No individual client’s holdings of  our common stock were more than 5.0% of our outstanding common stock.  The address for these beneficial owners is  50 Osgood Place, Penthouse, San Francisco, California 94133. |
| (10) | Includes  222,407 shares underlying options and 21,837 outstanding shares held  individually by Mr. Oliva’s wife.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

*EquityCompensation Plan Information*

* *

The following table gives information about ourcommon stock that may be issued upon the exercise of options, warrants andrights under all of our existing equity compensation plans as of December 31,2008.  The information below has beenadjusted to reflect a 1 for 3.75 reverse split of our common stock that wecompleted in November 2008.

 

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| **Plan category**                                      | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding  options, warrants  and rights** | ** ** | **Number of securities  remaining available  for future issuance  under equity  compensation plans  (excluding securities  reflected in column  (a))** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                 | ** ** | **(c)**                                                                                                                                                                                                  | ** ** |
|                                                        |       |                                                                                                                                                 |       |                                                                                                    |       |                                                                                                                                                                                                     |       |   |
| Equity  compensation plans approved by security holders     |       | 2,493,444                                                                                                                                            | (1)        |                                                                                                    | $3.47      |                                                                                                                                                                                                     |       | 8,544,302 | (2) |   |
| Equity  compensation plans not approved by security holders |       | —                                                                                                                                               |       |                                                                                                    | —     |                                                                                                                                                                                                     |       | — |   |   |
| Total                                                       |       | 2,493,444                                                                                                                                            |       |                                                                                                    |       |                                                                                                                                                                                                     |       | 8,544,302 |   |   |

 

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(1)              Represents shares ofcommon stock underlying options that are outstanding under our 1993 StockOption Plan, our Employee Stock and Stock Option Plan, our 1997 Stock IncentivePlan, our Amended and Restated 2000 Stock Option Plan and our 2007 StockIncentive Plan. The material features of these plans are described innote 11 to our consolidated financial statements for the years ended December 31,2008 and 2007.

(2)              Represents shares ofcommon stock available for issuance under options that may be issued under ourAmended and Restated 2000 Stock Option Plan and our 2007 Stock Incentive Plan.

 

**Item 13.**                Certain Relationships and Related Transactions, andDirector Independence.

 

**Director Independence**

** **

Our board of directors has determined that each of Messrs. Baskin,Finnegan and Mahmarian is independent under Rule 5.3(k) of the NYSEArca Equities Rules because none of those directors has, or during thepast three years has had, a material relationship with us, either directly oras a partner, stockholder or officer of an organization that has a relationshipwith us, and none of those directors is disqualified from being deemedindependent under any of subparagraphs (A)-(F) of Rule 5.3(k)(1) ofthe NYSE Arca Equities Rules. Our board of directors has also determined thateach of member of the audit committee is independent under Rule 10A-3(b)(1) ofthe Securities and Exchange Commission.

 

Under the NYSE Arca Equities Rules, thenon-management members of our board of directors must meet at regularlyscheduled executive sessions without management, with a non-management directorpresiding over each executive session. A presiding director for each session isselected by the board members in attendance at the session based upon thetopics to be discussed at the session. The non-management directors can becontacted by calling the chairman of the audit committee.  Further, if the non-management directorsinclude directors who are not independent, then we should at least once a yearschedule an executive session including only independent directors. Under theNYSE Arca Equities Rules, we must disclose if any member of our nominatingcommittee or compensation committee is not independent.

 

**Transactions with Related Persons**

 

We are party to indemnification agreements with eachof our directors and executive officers. The indemnification agreements and our certificate of incorporation andbylaws require us to indemnify our directors and officers to the fullest extentpermitted by Delaware law.

 

We obtain consulting services from Jason Oliva, theson of our chief executive officer, Carmine Oliva.  Payments made to Mr. Jason Oliva forthese services were $58,000 and $31,000 during the years ended December 31,2008 and 2007, respectively.

 

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**Item 14.**                Principal Accounting Fees and Services.

 

**Principal Accountant Fees andServices**

** **

*Fees andServices for 2008 and 2007*

* *

Thefollowing table sets forth the aggregate fees billed to us by Hein &Associates LLP, our principal accountant, for professional services rendered inthe audit of our consolidated financial statements for the years ended December 31,2007 and December 31, 2008.

 
| **Fee Category** | ** ** | **2007** | ** ** | **2008** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
|                  |       |     |       |     |       |
| Audit Fees            |       | $        | 327,000    |     | $          | 405,321 |   |
| Audit-Related  Fees   |       | 6,000    |       | 8,670    |       |
| Tax Fees              |       | 49,000   |       | 62,408   |       |
| All Other Fees        |       | —   |       | —   |       |
|                  |       |     |       |     |       |
| Total                 |       | $        | 382,000    |     | $          | 476,399 |   |

 

Audit Fees. Audit fees consist of fees billed for professionalservices for (i) audit of our 2007 and 2008 consolidated financialstatements, (ii) review of the interim consolidated financial statementsincluded in our 2007 and 2008 quarterly reports, and (iii) services thatare normally provided by an independent registered public accounting firm inconnection with statutory and regulatory filings or engagements.

 

Audit-Related Fees. Audit related feesconsisted of fees billed for professional services for due diligence performedwith respect to a financing transaction we consummated in 2007 and for servicesperformed with respect to an acquisition transaction we consummated in 2008.

** **

Tax Fees. Tax fees for 2007 and 2008 consisted of feesbilled for professional services for tax compliance, tax advice and taxplanning. These services include assistance regarding federal, state andinternational tax compliance, tax audit defense, customs and duties, mergersand acquisitions, and international tax planning.

 

All Other Fees. No other fees wereincurred for 2007 or 2008.

 

*Pre-Approval Policies and Procedures*

* *

Our audit committee pre-approves all servicesprovided by our principal accountant. Our audit committee also considers inadvance whether or not to approve any non-audit services to be performed by theindependent accounting firm required to be approved by the audit committeepursuant to any applicable rules and regulations.

 

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**PART IV**

** **

**Item 15.**                Exhibitsand Financial Statement Schedules.

 

Theexhibits filed as part of this Amendment No. 1 to Form 10-K are asfollows:

* *
| **Exhibit  No.**       | ** ** | **Description**                                                                                                                                                                                                    |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |                                                                                                                                                                                                               |
|    31.1 |       | Certification  of Principal Executive Officer Required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended, as Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|                   |       |                                                                                                                                                                                                               |
|    31.2 |       | Certification  of Principal Financial Officer Required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended, as Adopted Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |

 

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**SIGNATURES**

** **

Pursuant to the requirements of Section 13or 15(d) the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized on this 30th day of April, 2009.

 
|   | EMRISE CORPORATION |
|--------|--------------------|
|   |               |
|   | By:                | /S/  CARMINE T. OLIVA |
|   |               | Carmine  T. Oliva, |
|   |               | Chairman  of the Board, President and |
|   |               | Chief  Executive Officer (principal executive officer) |
|   |               |   |
|   |               |   |
|   | By:                | /S/  D. JOHN DONOVAN |
|   |               | D.  John Donovan, |
|   |               | Vice  President of Finance and Administration  (principal financial officer) and Secretary |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

** **
| **Signature**                   | ** ** | **Capacity**                                                  | ** ** | **Date**             |
|---------------------------------|------------|---------------------------------------------------------------|------------|----------------------|
| ** **                      | ** ** | ** **                                                    | ** ** | ** **           |
| /s/  Carmine T. Oliva           | ** ** | Chairman  of the Board, President, Chief                      | ** ** | April 30,  2009 |
| Carmine  T. Oliva               | ** ** | Executive  Officer (principal executive officer) and Director | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
| /s/  D. John Donovan            | ** ** | Vice  President Finance and                                   | ** ** | April 30,  2009 |
| D.  John Donovan                | ** ** | Administration  (principal financial officer)                 | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | Director                                                      | ** ** | ** **           |
| Laurence  P. Finnegan, Jr. | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
| /s/  Otis W. Baskin             | ** ** | Director                                                      | ** ** | April 30,  2009 |
| Otis  W. Baskin                 | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
|                            | ** ** | ** **                                                    | ** ** | ** **           |
| /s/  Richard E. Mahmarian       | ** ** | Director                                                      | ** ** | April 30,  2009 |
| Richard  E. Mahmarian           | ** ** | ** **                                                    | ** ** | ** **           |

 

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**EMRISE CORPORATION**

**EXHIBITS ATTACHED TO THIS REPORT**

 
| **Exhibit  Number**    | ** ** | **Description**                                                                                                                                                                                                    |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |                                                                                                                                                                                                               |
|    31.1 |       | Certification  of Principal Executive Officer required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|                   |       |                                                                                                                                                                                                               |
|    31.2 |       | Certification  of Principal Financial Officer required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |

 

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